Big Techs vs Banks

We study an economy in which large technology companies, big techs, provide credit to rms operating on their platforms. We focus on the trade-o⁄ between privacy and e¢ ciency in the interaction between big tech and bank lending. Big techs have access to troves of data on rms who trade on their platforms. This reduces privacy for their clients but results in more e¢ cient use of client-risk information curtailing strategic defaults in an environment with limited enforcement. Bank loans o⁄er greater privacy but must break even on average across di⁄erent risks, resulting in ine¢ cient defaults by solvent rms. Furthermore, big techs also have stronger enforcement of credit repayment since they can exclude a defaulter from their ecosystem. Fearing expropriation of their continuation values, rms will not borrow from an all too powerful big tech that has superior information as well as superior enforcement. Competitive privacy o⁄ered by big techs can attract intermediate-risk types and eliminate ine¢ cient defaults, where the safest rms prefer to enjoy information rent on a bank loan. The way big techs share information, i.e., by providing information publicly or in a private way, entails di⁄erent outcomes in terms of e¢ ciency